Labor Heterogeneity and the Risk of Expropriation in Less Developed Countries

Following the notion of skill-biased FDI fl ows from developed to less developed regions, high-skilled workers are likely to benefi t from FDI to a larger extent. They earn a productivity advantage that potentially transfers into a skilled wage premium. This gives rise to distributional confl ict that might turn into heterogeneous attitudes toward FDI infl ows in line with skill. In this paper I study the eff ect of less developed countries’ skill compositions on the risk of expropriation. Not surprisingly, it turns out that the risk of expropriation decreases with a larger employment share of high-skilled workers. However, in a theoretical model, the eff ect is diminishing and even turns negative in the empirical investigation: if the relative supply of high-skilled labor is too large, the skilled wage premium turns negative despite the skill-bias of FDI. Then, high-skilled workers’ positive attitudes toward FDI vanish. JEL Classifi cation: F21, D78, J24